"When Paolo gave his salute on the pitch it was a gesture from the heart, and the way he is being treated now in England is not correct," said Ferrini, a lifelong fascist, who runs one of the string of memorabilia shops that line the main street of Predappio, Benito Mussolini's birthplace. When Di Canio visited the store a few years back on a trip to the town, Ferrini wanted to show his respect for the footballer. "I presented him with a bust of Mussolini," he recalls fondly.

As Di Canio battles on as Sunderland's new manager despite the furore over his Mussolini tattoo and notorious fascist salute to fans when he played for the Rome team Lazio, Predappio is a good place to start understanding what fascism means to Italy today, and why not all Italians are getting too riled by a stiff-arm saluting footballer.

The town of 6,500, tucked into hills covered by vineyards and fruit trees in Emilia Romagna, draws 100,000 pilgrims a year to Mussolini's tomb, where the visitors' book is crammed with exhortations to the dead dictator to "rise again and save Italy".

Predappio graphic. Photograph: Observer

Visitors can also take in the town, a medieval hamlet that was rebuilt on Mussolini's orders in the 1920s with imposing, wildly out of proportion state office buildings and neat grids of two-storey brick houses backing into green fields. Disregarding the commonsense rule that aircraft should be built where they can take off, he then insisted on building an aviation factory in the hills outside town.

As he reinvented Predappio to bolster his prestige, Mussolini was meanwhile strengthening his dictatorship nationwide, arresting and exiling opponents, passing racial laws banning Jews from public office and pushing Italy into a disastrous alliance with Hitler and a punishing war that ended with partisans hanging his body upside down in Milan in 1945.

But to listen to some Italians today, Mussolini's misdeeds are a mere distraction from his triumphant road and railway building, his draining of malarial marshes, introduction of a welfare state and the building of abundant public housing, not least the neat Rome tenements divided by tidy gardens where Paolo Di Canio first kicked a football. The idea that Mussolini's record can be split in two, with the negatives set aside, was seized on as a vote-winner in January by Silvio Berlusconi, who said: "The racial laws were the worst fault of Mussolini as a leader, who in so many other ways did well."

Despite, or perhaps because of its heritage, Predappio has long elected leftwing mayors, most recently Giorgio Frassineti, a geologist who possesses the sardonic sense of humour required to run a town regularly besieged by busloads of what Italians diplomatically call "Nostalgics".

"Italians treat history like a butcher's shop, where you can pick just the nice cuts you want," Frassineti said on Thursday, as he officially opened an ice-cream parlour across the street from a semi-circular piazza laid out in the centre of town by the Duce, where a gap in a classical colonnade deliberately frames a view of the stone cottage where the dictator was born.

"Italy has never come to terms with Mussolini, and Predappio represents that," said Marie-Line Zucchiatti, 48, a town councillor. "Locals watch the visitors piling off the buses but just don't get involved."

"I get up to 10 insulting emails a week, from leftwingers who say I cater too much for the visitors and also from rightwingers who say I don't do enough," said Frassineti.

At his fascist memorabilia store, Ferrini was convinced the pilgrims pouring off the buses three times a year – to celebrate the date of Mussolini's birth, death and the fascist "march on Rome" in 1922 – were the tip of an iceberg. "If they held a referendum tomorrow asking Italians, 'Are you a fascist?', five or six million would say yes," he said.

Politicians unafraid of praising Mussolini re-entered the political mainstream in 1994 when Berlusconi brought Gianfranco Fini's post-fascist National Alliance party into government. A Berlusconi minister, Ignazio La Russa, broke taboos in 2008 by eulogising the Italian troops who fought for the Salò republic headed by Mussolini in northern Italy and backed by the Nazis after he was ejected from power in 1943. In 2006 Alessandra Mussolini, the Duce's granddaughter and a Berlusconi MP, proclaimed: "Better a fascist than a faggot."

But Walter Veltroni, the centre-left politician whom Berlusconi defeated to regain office in 2008, warned there could be no ifs or buts about Mussolini. "The period was a tragedy and Mussolini has a gigantic responsibility," he said.

As mayor of Rome in 2006, Veltroni invited players from Lazio and Roma to listen to a talk by an Italian Jew who was deported to Auschwitz by the Nazis in 1944. "I did it after antisemitic banners were waved by fans of the teams," he said. "Paolo Di Canio was the Lazio captain at the time, and he told me he was really struck by the talk."

While critical of the right's frequently rose-tinted view of Mussolini, Veltroni also attacked the Italian left's long-time habit of drawing a veil over two decades of Italian fascism. "That has meant turning the page without metabolising our history, and the more you ignore the period, the more fanaticism develops," he said.

Veltroni said he had been shocked at the discovery last month of a long-hidden network of air raid tunnels that Mussolini had built under his wartime office in Rome at Palazzo Venezia, a stone's throw from the town hall. "I was mayor of Rome and knew nothing about it," he said. "I reopened to the public Villa Torlonia, Mussolini's wartime residence in Rome, and it hasn't become a second Predappio yet," he said. "I would like to see the balcony at Palazzo Venezia, where Mussolini gave his speeches, be opened again, without embarrassment, so children can stand on it."

Frassineti said he was trying to put the same ideas into practice at Predappio, to encourage visitors "not to celebrate or negate the past, but to understand it, to finally get the debate going about Mussolini that Italy has never had".

Walking through the colonnade from the ice-cream parlour, he scaled the steps to the house where Mussolini was born, where he has set up a photographic exhibition showing how the dictator built the new Predappio around the stone building, to elevate it to a shrine. Photographs show wedding parties posing on the steps of the house and architectural plans for the new town. As an engrossing historical record, it is a far cry from the baseball bats with Mussolini's face on them and the SS coffee cups that are on sale on the high street.

"Sometimes the Nostalgics refuse to pay to get in to the house, because they don't want to put money in the coffers of a 'communist' mayor like me, but I also see a growth in the number of curious visitors who are neither Mussolini sympathisers nor feel the shame any more of coming to look," he said.

"We are even getting school trips, which would have been unthinkable a few years ago. It shows that the debate is finally starting."

Further down the road, Ferrini showed no sign of wanting to get into a debate on the subject, ending his interview with a fascist salute. "I am planning the next Paolo Di Canio T-shirt," he said. "It will read 'Sunderland', with an image of Di Canio giving his salute above," he added.